Judgment:
J.P. Devadhar, J.
1. By the Maharashtra Tax Laws (Levy and Amendment) Act, 2002, published on May 4, 2002, Section 33C has been inserted into the Bombay Sales Tax Act, 1959 ('the BST Act' for short), with retrospective effect from July 1, 1981. The validity of the newly inserted Section 33C to the BST Act is challenged in this petition mainly on two grounds. Firstly, the State Legislature is not competent to declare that for the purposes of sales tax, the date of amalgamation of the companies shall not be from the date declared by the court or the Central Government under the Companies Act, 1956, but from the date on which the scheme of amalgamation of the companies is approved by the court or the Central Government under the above Act and secondly, assuming the State has such legislative competence, then, such power cannot be exercised retrospectively so as to nullify the past orders passed by the court or the Central Government as the case may be. In other words, the submission is that Section 33C may be valid prospectively from the date of its insertion on May 4, 2002, but it is invalid for the period prior to May 4, 2002, because it amounts to by-passing or overruling the judicial orders already passed under the Companies Act, 1956. In a nutshell, the second submission is that Section 33C is invalid to the extent it applies for the period from July 1, 1981, to May 3, 2002.
2. The facts in brief, relevant for the purpose of this petition, are as follows:
National Organic Chemical Industries Limited ('NOCIL' for short) and Polyolefins Industries Limited ('PIL' for short) were two companies duly registered under the Companies Act, 1956. NOCIL is engaged in the business of manufacture of rubber and plastic products. Up to 2002, NOCIL was also manufacturing petrochemicals and polymers. PIL was also engaged in the manufacture of polymers, rubber chemicals and plastic products. These two companies decided to amalgamate and the terms and conditions of the scheme of amalgamation were finalised and approved by the board of directors of NOCIL on March 8, 1994. As per the scheme, the amalgamation was to be effective from April 1, 1993 ('appointed date' for short). On May 17, 1994, NOCIL presented the scheme of amalgamation before the Bombay High Court for approval under Section 391 of the Companies Act, 1956. On being satisfied that all the requirements of Section 391 of the Companies Act, 1956, are complied with, the High Court by an order dated November 10, 1994, approved the amalgamation of the two companies from the appointed date, i.e., April 1, 1993. On November 24, 1994, the order of the High Court was filed before the Registrar of Companies. Thus, PIL stood amalgamated with NOCIL with effect from April 1, 1993.
3. As per the scheme of amalgamation, PIL was to carry on its business activities as trustee for and on behalf of NOCIL from the appointed date, i.e., April 1, 1993, till the scheme was approved by the High Court. Accordingly, from the appointed date, i.e., April 1, 1993, till the date of approval of the scheme on November 10, 1994, the business was carried on by PIL as trustee of NOCIL, However, as a matter of abundant caution, in respect of the goods supplied by NOCIL to PIL during the period April 1, 1993, to November 10, 1994, sales tax was collected by NOCIL from PIL. In the sales tax return filed by NOCIL for the period April 1, 1993, to March 31, 1994, the total turnover of sales declared included transfer of goods by NOCIL to PIL. The value of the goods supplied by NOCIL to PIL, during April 1, 1993, to November 10, 1994, was Rs. 64.57 crores and the sales tax provisionally collected pending approval of the scheme of amalgamation was Rs. 2.67 crores. However, it was categorically stated in the sales tax return that the sales tax in respect of the goods supplied by NOCIL to PIL from April 1, 1993, is being paid provisionally subject to the outcome of the amalgamation proceedings pending before the Bombay High Court.
4. During the assessment proceedings, the Assessing Officer took note of the approval granted by the High Court for amalgamation of the two companies with effect from April 1, 1993, and accordingly passed the assessment order on March 31, 1997, holding that NOCIL and PIL being one legal entity with effect from April 1, 1993, the transactions between NOCIL and PIL from April 1, 1993, cannot be treated as sales liable to tax. As per the assessment order the sales tax Rs. 2.67 crores paid by NOCIL provisionally was refunded by the Sales Tax Department to NOCIL on April 2, 1997.
5. NOCIL had filed an appeal against the aforesaid assessment order on certain other issues, such as set off, turnover tax, purchase tax, etc. In the said appeal, the Deputy Commissioner of Sales Tax (Appeals) issued a show-cause notice on November 19, 1997 calling upon NOCIL to show cause as to why supply of goods worth Rs. 64. 57 crores by NOCIL to PIL from April 1, 1993, should not be treated as sales liable to tax under the BST Act. The petitioners in their reply letter submitted that from April 1, 1993 PIL stood merged with NOCIL as per the High Court's order dated November 10, 1994 and, therefore, there being no two separate legal entities from April 1, 1993, the transactions between NOCIL and PIL cannot be considered as sale transactions and consequently there was no liability to pay sales tax. The appellate authority, however, by an order dated March 31, 1998, passed under Section 55(6) of the BST Act, rejected the contention of the petitioners and held that the amalgamation of one company into another can always be prospective and not retrospective, and that the High Court could not approve the amalgamation of two companies with retrospective effect from April 1, 1993. By the said order, the Deputy Commissioner of Sales Tax (Appeals) held that the goods supplied by NOCIL to PIL from April 1, 1993 to November 10, 1994, are liable to sales tax and accordingly directed issuance of demand notice for recovery of sales tax. Challenging the order of the Deputy Commissioner of Sales Tax (Appeals), NOCIL filed a second appeal before the Maharashtra Sales Tax Tribunal. During the pendency of the said second appeal, the State Legislature enacted the Maharashtra Tax Laws (Levy and Amendment) Act, 2002, and the same was published in the Maharashtra Government Gazette on May 4, 2002, By the said Act, Section 33C was inserted to the BST Act with retrospective effect from July 1, 1981. The validity of this newly inserted Section 33C is challenged in the present petition.
6. A few more facts may also be noted at this stage. Pursuant to the order of the High Court approving the amalgamation, PIL applied for cancellation of its sales tax registration with effect from April 1, 1993, and the same was granted by the sales tax authorities. However, PIL realising that the cancellation of its registration with effect from April 1, 1993, would adversely affect third parties who had transactions with PIL, filed an appeal requesting that its registration be cancelled with effect from November 10, 1994, i.e., the date on which the High Court passed the order approving amalgamation of the two companies. Accordingly, the Appellate Authority has cancelled the registration of PIL with effect from November 10, 1994.
7. As stated hereinabove, in this petition, we are concerned with the constitutional validity of Section 33C introduced in the BST Act with retrospective effect from July 1, 1981. The said Section 33C reads as under (see page [2002] 127 STC 16) :
'33C (1) When two or more companies are to be amalgamated by the order of a court or of the Central Government and the order is to take effect from a date anterior to the date of the said order and any two or more of such companies have sold or purchased any goods to or from each other during the period commencing on the date from which the order is to take effect and ending on the date of the order, then notwithstanding anything contained in the said amalgamation order, such transactions of sale and purchase shall be included in the turnover of sales or, as the case may be, purchases of the respective companies and shall be assessed to tax accordingly, and for the purposes of this Act, the said two or more companies shall be treated as distinct companies and shall be treated as such for the entire period up to the date of the said order, and the registration certificates of the said companies shall be cancelled, or amended, where necessary, with effect from the date of the said amalgamation order.
(2) Words and expressions used in this section, but not defined, shall have the respective meanings assigned to them in the Companies Act, 1956.'
8. Thus, by inserting Section 33C in the BST Act, it is declared by the State Legislature that where two or more companies are to be amalgamated by an order of the court or the Central Government and the order is to take effect from a date anterior to the date of the order, then, for the purposes of sales tax the said companies shall be deemed to be distinct and separate companies till the date on which the scheme of amalgamation is approved by the court or the Central Government. By giving retrospective effect to Section 33C, it is declared by the State that the above concept of law shall be deemed to be in existence, from July 1, 1981, irrespective of the order of amalgamation passed by a court or the Central Government. In other words, Section 33C applies not only to the cases where the amalgamation order is yet to be passed, but it also applies to all amalgamation orders passed by the court or the Central Government during the period from July 1, 1981, to May 3, 2002.
9. Counsel appearing for the respective parties have extensively argued before us regarding the legislative competence of the State Legislature to enact Section 33C to the BST Act as well as its retrospective operation from July 1, 1981. Since the amalgamation of PIL with NOCIL took place prior to the insertion of Section 33C on May 4, 2002, it would be appropriate to take up the issue pertaining to the retrospective operation of Section 33C first. Accordingly, we deal with the arguments advanced by counsel on both the sides regarding the retrospective enactment of Section 33C.
10. Mr. Dada, learned senior advocate appearing on behalf of the petitioners submitted that assuming the State has legislative competence to declare that irrespective of the power of the court to approve the scheme of amalgamation from an anterior date, for the purposes of sales tax, a company in amalgamation shall be deemed to be a separate entity till the date on which the scheme of amalgamation is actually approved by the High Court or the Central Government, even then, such a legislation cannot be brought into force retrospectively. He submitted that once the High Court under Section 391 of the Companies Act declares that the two companies shall stand amalgamated from a date anterior to the date of approving the scheme of amalgamation, then, for all purposes the said two companies cease to exist as two separate entities from that anterior date. He submitted that in all cases where the amalgamation orders are passed by the High Court prior to May 4, 2002, the date of amalgamation shall be the date set out in the amalgamation order, and the same cannot be altered by the State Legislature. Counsel submitted that by inserting Section 33C with retrospective effect from July 1, 1981, the State Legislature has in fact tinkered with the orders passed by the High Court during the period July 1, 1981, till May 3, 2002.
11. He submitted that when a judicial order is passed directing that the amalgamation of two companies shall be from a particular date, it is not open to the State Legislature to interfere with the court order and declare that for the purpose of sales tax the amalgamation of the two companies shall not be from the anterior date specified by the High Court, but from the date on which the High Court approved the scheme of amalgamation. He submitted that such a legislation which directly interferes with the judicial order must be held to be unconstitutional.
12. Mr. Dada further submitted that the High Court order sanctioning the scheme of amalgamation from the appointed day is an order in rem binding on all the authorities including the sales tax authorities. He submitted that the State Legislature cannot override the order of amalgamation passed by the High Court. He submitted that if at all the State was aggrieved by the date of amalgamation of companies passed by the High Court under Section 391 of the Companies Act, it was open to the State to approach the High Court and seek modification under Section 392 of the Companies Act, 1956. Instead of approaching the High Court and seeking modification of the date of amalgamation, the State has chosen to retrospectively insert Section 33C to the BST Act with a view to overcome the judicial order. He submitted that such a course is not permissible in law, and, therefore, the provisions of Section 33C to the extent of its retrospectivity are liable to be struck down.
13. In support of his contention, Mr. Dada relied upon the judgment of the apex court in the case of Marshall Sons and Co. (India) Ltd. v. Income-tax Officer : [1997]223ITR809(SC) . He submitted that the apex court in that case had directly dealt with the issue of effect of amalgamation and after setting out the numerous steps required to be taken by the court before approving the scheme of amalgamation, the apex court held that the necessary and logical consequence of the court sanctioning the scheme of amalgamation is that there can be no income arising on account of the transferor company carrying on business from the appointed day till the effective day, because, during the said period, the transferor company should be deemed to be carrying on business for and on behalf of the transferee company. In other words, the apex court held that the date of amalgamation of the companies determined by the court under the Companies Act would be binding on the authorities under the Income-tax Act and accordingly the apex court quashed the proceedings initiated under the Income-tax Act. He submitted that in the present case, from April 1, 1993 to November 10, 1994, the business was carried on by PIL as agent or trustee of NOCIL and, therefore, the transactions between PIL and NOCIL during the said period cannot be said to be between two separate entities. He submitted that in the light of the decision of the apex court in the case of Marshall Sons and Co. (India) Ltd. : [1997]223ITR809(SC) , the orders passed by the High Court under the Companies Act would bind the sales tax authorities also. Accordingly, it was submitted that the effective date of amalgamation of the companies determined by the High Court could not be nullified by the State Legislature. Counsel for the petitioners has also relied upon the judgment of this court in the case of CIT v. Swastik Rubber Products Ltd. : [1983]140ITR304(Bom) . In that case, on September 27, 1971, the High Court under Section 391 of the Companies Act, 1956, had approved the amalgamation of Bank of Maharashtra Limited with Swastik Rubber Products Limited with effect from July 1, 1971. On a question coming up for consideration as to what was the effective date of amalgamation, it was held that even for assessing income under the Income-tax Act the effective date of amalgamation will be July 1, 1971, as ordered by the court under the Companies Act. In the present case, it was submitted that from April 1, 1993, all transactions between NOCIL and PIL have to be considered as transactions with one entity, i.e., NOCIL and where the transactions are from one to oneself, the concept of sale does not apply to such transactions. It is well established in law that to constitute sale there must be two separate parties/entities to the transaction. It was submitted that if the Legislature wanted to treat the supply of goods, from one to oneself as 'sale', then unless the Constitution is amended, the State cannot bring to tax such transactions. In any event, it was submitted, that in respect of the cases where the court has already ruled that the amalgamation of the companies shall be from a particular date, then, the State does not have legislative power to alter the date of amalgamation even under the sales tax law.
14. Counsel for the petitioners relied upon the judgment of this court in the case of CIT v. Mather and Plait (India) Ltd. : [1993]204ITR757(Bom) , wherein following the judgment of this court in the case of Mafatlal Gagalbhai and Co. Pvt. Ltd. v. CIT [1992] 193 ITR 188, it was held that under the scheme of amalgamation from the appointed day, the transferor company amalgamated with the transferee company and that any dividend which was declared thereafter by the transferor company and which had been paid to the transferee company in respect of shares which the transferee company originally held in the transferor company could not be treated as income of the transferee company because, after coming into operation of the scheme of amalgamation, the transferee company could not receive dividend on its own shares. In the light of the aforesaid decision, it was submitted that in the present case from April 1, 1993, the business was carried on the PIL as agent or as trustee of NOCIL and, therefore supply of goods by NOCIL to PIL from April 1, 1993, could not be treated as sale. It was submitted that under the Constitution, the State Legislature was competent to levy sales tax on sale transactions between two separate and distinct entities and not the transactions between a single entity. Counsel for the petitioners relied upon the decision of the apex court in the case of Bhopal Sugar Industries limited v. D.P. Dube : [1964]1SCR481 , wherein it was held that consumption by an owner of goods in which he deals is not a sale within the meaning of the Sale of Goods Act and, therefore, it is not 'sale of goods' within the meaning of entry 54, List II, Schedule VII to the Constitution. Accordingly, it was submitted that supply of goods by NOCIL to PIL who was trustee or agent of NOCIL from April 1, 1993, cannot be treated as sale between two entities.
15. Mr. Dada further submitted that the retrospective insertion of Section 33C has far-reaching consequences as it purports to reopen all the income-tax and sales tax assessments from 1981 which have attained finality. He submitted that the amalgamation order is passed by the court after taking into account all fiscal and tax matters and therefore, full effect must be given to the fact that the amalgamating company ceases to exist from the date of the amalgamation taking effect. He submitted that the shareholders of the companies involved in amalgamation arrive at the share exchange ratio on the basis of the net worth after eliminating the effect of transactions between those companies. The profit and loss account and the balance-sheet of all the companies have been drawn up as per the order of amalgamation passed after July 1, 1981, and the tax liability of all the companies has been assessed and the said assessments have attained finality. He submitted that the retrospective amendment would result in changing the said commercial bargain because of recasting of the balance-sheet to give effect to Section 33C and consequently giving effect to the increase in liability on account of sales tax. The impugned amendment would also result in revising the income-tax returns of both the companies which cannot be done due to time-limit of one year provided under Section 139(5) of the Income-tax Act, 1961. By the retrospective amendment rights and liabilities of all the companies amalgamated after July 1, 1981, have been sought to be disturbed without any justification. He submitted that the only reason given by the respondents for retrospective insertion of Section 33C from July 1, 1981, is that there were substantial changes effected to the BST Act from July 1, 1981, and that is why Section 33C has been inserted with retrospective effect from July 1, 1981. He submitted that none of the amendments effected to the BST Act on July 1, 1981 related to the effective date of amalgamation of the companies and, therefore, the retrospective insertion of Section 33C is wholly arbitrary and without any justification. He submitted that while it is open to the Legislature to retrospectively remedy the defect pointed out by the court, it is not open to the Legislature to retrospectively nullify the order passed by the High Court. He submitted that prospectively it may be open to the Legislature to legislate that for the purposes of sales tax the two companies are to be treated as separate entities till the date of the order of the High Court so that the High Court while passing the order of amalgamation would take into account the changes effected in the BST Act. However, it was submitted that where the court has already ordered that the amalgamation shall be from a particular date, then, the said date of amalgamation is binding on the State as well as the sales tax authorities. Accordingly, it was submitted that Section 33C to the extent it operates retrospectively must be held to be arbitrary, illegal and violative of articles 14 and 19(1)(g) of the Constitution.
16. It was further submitted that the amalgamation of the two companies sanctioned by the company court under Section 391 of the Companies Act with effect from April 1, 1993, has to be taken to its logical end and there will be conflict and chaos if the date of amalgamation for Central Sales Tax Act, Companies Act, Income-tax Act, etc., is with effect from April 1, 1993, and the date of amalgamation for the purposes of sales tax is November 10, 1994. Such a situation would lead to inconsistency and conflict and would lead to unsettling the transactions which are closed since last 23 years.
17. It was submitted that as a result of the company court approving the amalgamation from April 1, 1993, the transfer of goods from April 1, 1993, by NOCIL to PIL are liable to be treated as branch transfers. It was submitted that even if the respondents argument that the scheme under Section 391 of the Companies Act is only for restructuring of the two companies is accepted, even then, the transfer from the appointed date would be a branch transfer as transferor and transferee company have merged from the appointed date. In this regard counsel for the petitioners relied upon the judgment of the Andhra Pradesh High Court in the case of KCP Limited v. State of Andhra Pradesh [1993] 88 STC 374, wherein it was held that branch transfers between two units though registered separately under the Sales Tax Act would not constitute sale.
18. It was further submitted on behalf of the petitioners that as the respondents have not given any explanation to justify the retrospective insertion of Section 33C, the section does not stand to the test of reasonableness. It was submitted that the respondents have also failed to explain the underlying purpose of the enactment, the extent and the urgency of the evil sought to be remedied thereby, the disproportion of the imposition and the prevailing conditions which led to the passing of such a harsh enactment. In the absence of any such explanation, it was submitted, that the enactment with retrospective effect is bad in law.
19. Counsel for the petitioners relied upon the judgment of the apex court in the case of D. Cawasji and Co. v. State of Mysore : [1984]150ITR648(SC) , wherein it was held that instead of remedying the defect or removing the lacuna, where the State by amending the Act had sought to raise the rate of tax with retrospective effect, so as to avoid the liability to refund the excess amounts collected as ordered by the High Court, the amendment amounts to nullifying the judgment of the High Court which is not permissible in law. It was further held by the apex court that to the extent the Act imposed the higher levy with retrospective effect and sought to nullify the judgment and order of the High Court, the Act was invalid and unconstitutional. In the present case, Mr. Dada submitted that insertion of Section 33C has direct and immediate effect of nullifying the order passed by the High Court and, therefore, such an Act must be held to be ultra vires to the extent of its retrospectivity.
20. Mr. Dada relied upon the judgment of the apex court in the case of Raghubar Dayal Jai Parkash v. Union of India, : [1962]3SCR547 . In that case, the apex court held that the reasonableness of the provisions of a statute are not to be judged by a priori standards unrelated to the facts and circumstances of a situation which occasioned the legislation. The apex court referred to an oft-quoted passage of Patanjali Sastri C. J. in the case of State of Madras v. V. G. Row, : 1952CriLJ966 , which reads as under (page 274) :
'It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned, and no abstract standard, or general pattern of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict.'
21. In the light of the aforesaid observations of the apex court, it was submitted that in the present case there was no evil sought to be remedied and the only object of the retrospective amendment was to nullify the effect of the order passed by the High Court and, therefore, such a provision being ultra vires the Constitution cannot be sustained.
22. It was submitted that the judgment of the company court is binding on all courts including the revenue authorities. Before approving the scheme, as per the Companies (Court) Rules/ public notice is required to be given calling for objections for amalgamation of the two companies from the appointed date. The creditors are therefore put to notice and their objections are taken into account. The courts do not sanction schemes which are against public interest. It was submitted that the order of the court under Section 391 of the Companies Act has a statutory force. It was submitted that the order of the High Court under Section 391 of the Companies Act is in the nature of insolvency jurisdiction as contemplated under Section 41 of the Indian Evidence Act. Accordingly, it was submitted that the order passed under Section 391 of the Companies Act is an order in rem and binding on all the authorities including the sales tax authorities. Accordingly, it was submitted that in any view of the matter, application of Section 33C for the period prior to its insertion on May 4, 2002, is illegal and unconstitutional and, therefore, to the extent Section 33C applies for the period from July 1, 1981, to May 3, 2002, must be held to be unconstitutional.
23. Mr. Naphade, learned senior advocate appearing on behalf of the State, on the other hand, submitted that the impugned enactment merely lays down that once sale takes place between two companies, their subsequent merger even though with retrospective effect by a fiction of law does not affect the reality as existed at the time of sale. He submitted that the impugned enactment is only clarificatory and merely explains the existing law. The impugned enactment treats reality as reality for the purpose of tax law and, therefore, it cannot be said to be unreasonable restriction. He submitted that the Companies Act and the Bombay Sales Tax Act operate in two different legislative fields. One relates to the organisational structure between one or more companies and rights, obligations, etc., of persons associated with those companies and the other relates to sales tax. As the two enactments operate in two different legislative fields there is no question of the one colliding with the other. The company court is not an authority under the sales tax law, it cannot decide the question of sales tax liability of the transferor or the transferee company. He submitted that the jurisdiction of the company court flows from the provisions of the Companies Act. There is no provision in the Companies Act, which deals with sales tax liability of the transferor or the transferee company.
24. Mr. Naphade submitted that the separate existence of the two companies during the relevant period is sufficient to attract tax liability and there is no provision in the BST Act to cancel such sale on the ground that subsequently the transferor company lost its identity and got merged into the transferee company with retrospective effect. All that the impugned enactment does is that it reiterates the law as it exists and existed even prior to the incorporation of Section 33C in the statute book. Section 33C, i.e., the impugned enactment thus does not create a new liability nor does it lay down any new principle or new rule of law. The impugned enactment is only clarificatory or explanatory in nature. It only clarifies the true legal position and is enacted by way of abundant caution as in its absence the authorities under the BST Act could have had reasonable doubts in the matter.
25. Counsel for the respondents submitted that the question whether the retrospective effect given to amalgamation should also govern the sales tax law is a matter of legislative policy. The Companies Act does not empower the company court to issue any direction to the sales tax authorities directing them to treat the sales between the transferor and the transferee companies during the relevant period as cancelled. It is not the duty of the court either to enlarge or cut down the scope of the legislation. It was submitted that the court cannot rewrite, or recast law as it has no power to legislate. The power to legislate is not conferred on the court. The question of giving retrospective effect to the legislation is a question of legislative policy and being a question of legislative policy the same cannot be closely canvassed under article 226 of the Constitution of India.
26. Counsel for the respondents submitted that the argument of the petitioners is that since the parties by their voluntary act have agreed to merge with retrospective effect the sales tax must recognise it. He submitted that the argument of the petitioners relates to what law ought to be and not what the law is. He submitted that the petitioners are indirectly inviting the court to lay down what the law ought to be and not what the law is. He submitted that this is for beyond the judicial functions of this court as an important constitutional organ of the State. He submitted that deciding what the law ought to be is a legislative function and deciding what the law is relates to judicial function. Relying upon the judgment of the apex court in the case of General Radio and Appliances Co. Ltd. v. M. A. Khader : [1986]2SCR607 , he submitted that amalgamation is a voluntary act of the parties and the property of the transferor is transferred to the transferee by voluntary act of the parties and not by operation of law and therefore, such voluntary act does not bind the sales tax law. Alternatively, he submitted that the question of sales tax liability is not within the purview of the scheme of amalgamation and, therefore, does not form a part of the order/judgment of the court sanctioning amalgamation.
27. As regards the retrospective operation, it was submitted that it is well recognized position in law that imposition of tax retrospectively by itself would not be unreasonable restriction on the right to carry on business. The power of the Legislature to make retrospective legislation including fiscal legislation is well settled. Such a legislation per se is not unreasonable. Retrospective legislation is a concomitant function of the legislation. The power to legislate being a constitutional function, any limitation in discharge of that function has to be found in the Constitution itself. The authority to legislate imbibes the power to legislate both retrospectively and prospectively unless there is a constitutional bar against retrospective legislation. Once the power to tax is conceded it is for the Legislature to decide the scope of the tax, on whom it is to be levied, how it is to be levied, the time from which it is to be levied and how it is to be collected. He submitted that the levy of tax is the outcome of fiscal policy of a Government which it gets sanctioned through the Legislature. There can be no inherent limitation to retrospectively levy a tax.
28. It was submitted that a legislation can be ultra vires only if it is not within the legislative competence or if it violates any of the fundamental rights or any of the constitutional provisions. Merely because the tax cannot be passed on to customer it would not render the legislation itself void. It was submitted that in the instant case the retrospective operation does not cause any prejudice or hardship to the petitioners as at the time when the sale took place the two companies were distinct and separate entities and, therefore, sales tax was attracted. The impugned enactment does not impose any new liability or any additional liability. In any event the legislation is not confiscatory in nature. The impugned enactment is only clarificatory in nature and explains only the law as it existed at all material times and the impugned enactment only removes the doubt on the true legal position.
29. It was submitted that assuming without admitting that the impugned enactment creates a new rule even then it cannot be considered as unreasonable. It was submitted that giving a retrospective effect is essentially a question of legislative policy. The fact that a dealer is not in a position to pass on the tax on others does not affect the competence of the Legislature to enact a law imposing tax retrospectively because that is a matter of legislative policy. It was submitted that it is axiomatic that the Government needs revenue to discharge its obligations towards its citizens. It was submitted that in the instant case the petitioners have not shown any real prejudice or hardship. Accordingly, it was submitted that it is not necessary for the State to further justify giving retrospective effect to the fiscal legislation.
30. It was submitted that the impugned enactment is given retrospective effect from July 1, 1981, because substantial amendments were effected to the BST Act by Act No. 32 of 1981. By 1981 amendment the structure of the BST Act was substantially changed. Section 3 which deals with the incidence of tax is amended with effect from 1981. The amendment has also changed the basic system of taxation. Prior to the amendment, the BST Act contained a composite system of sales tax. In its place a system of levy of single point sales tax at first stage of sale for all taxable commodities was introduced. There were other sections to which changes were effected by 1981 amendment. Therefore, the impugned enactment is given effect from July 1, 1981. It was submitted that the Legislature has adopted this as a legislative policy and, therefore, the same cannot be challenged on the ground of article 14 or 19(1)(g).
31. It was submitted that the impugned enactment is not a validating Act but is analogous to the same. The impugned enactment proceeds on the footing that the courts may take a view that the retrospective effect of amalgamation order also applies to sales tax liabilities and on that footing the sales tax authorities would be required to refund the sales tax already levied on the sale of goods effected by the transferee company (petitioner herein) to the transferor (PIL) during the relevant period or not to levy the tax. It was submitted that the Legislature need not wait till some court actually decides that the sales tax is required to be refunded or is not to be levied and then come out with a validating law by making the necessary changes in law with retrospective effect. It was submitted that it is settled law that once the basis on which the court passes an order is changed with retrospective effect then such retrospective amendment does not interfere with the judicial functions of the court. All validating laws give effect to the new rule or new principle with retrospective effect and specifically lay down that this new principle or rule will apply not-withstanding anything contained in the judgment, decree or order of any court. It was therefore submitted that the impugned enactment must be judged on the same parameters as applied to the validating law.
32. It was submitted that the legislative power conferred on the appropriate Legislatures to enact laws in respect of topics covered by several entries in the three Lists can be exercised both prospectively and retrospectively. The legislative power, in addition, includes the subsidiary or auxiliary power to validate laws which have been found to be invalid. Similarly, the Legislatures have power to validate fiscal levy with retrospective effect even by making necessary changes in the law and by removing deficiencies or defects pointed out by the courts. It was submitted that this power to validate fiscal levy is on the footing that the courts have found that there is no authority of law to levy the tax as there is no provision in the enactment in that behalf. Such a defect can be cured by making necessary changes in the law with retrospective effect and giving the levy the authority of law. This is purely a legislative function.
33. It was submitted that it was competent to the appropriate Legislature to cure the infirmity and pass a validating law so as to make the provisions of the said earlier law (law which was found to be defective) from the date when it (earlier law) was passed. It was submitted that the amending Acts often cure an infirmity or defect revealed by the judgments of the court and they validate the past levy and collection of tax by making changes with retrospective effect. Declaring what the law is, is the judicial function and making the law or deciding what law ought to be is the legislative function. In validating the past levy or the past recovery of tax by changing the basis of law the Legislature cannot be accused of trespassing on the preserve of the judiciary. It was submitted that there are innumerable cases where the Legislature amended the law retrospectively and removed the basis of the decision rendered by a competent court and the courts have held that this is within the permissible limits of legislative functions and that validation of the old Act or validation of action taken under the old law by amending it retrospectively does not constitute any encroachment on the functions of the judiciary.
34. In this behalf reliance was placed on the decisions of the apex court in the case of CTO v. Sri Venkateswara Oil Mills [1973] 32 STC 660 ; Indian Aluminium Company v. State of Kerala, : [1996]2SCR23 ; Welfare Association A.R.P., Maharashtra v. Ranjit P. Gohil, : [2003]2SCR139 ; P. Kannadasan v. State of Tamil Nadu, : AIR1996SC2560 and State of Andhra Pradesh v. National Thermal Power Corporation Ltd. : [2002]3SCR278 . In all these cases, it is held by the apex court that it is permissible for the State Legislature to enact a law which will withdraw or fundamentally alter the basis on which a judicial pronouncement has proceeded and create a situation where if that altered basis had existed earlier, the court would not have made the pronouncement. In the light of the aforesaid decisions it was submitted by Mr. Naphade that Section 33C is clarificatory in nature as it merely recognises and preserves the existing reality and in so doing the court order is not affected at all. Alternatively, it was submitted that even if it is held that Section 33C deals with fresh levy, the retrospective enactment of Section 33 from July 1, 1981, can still be sustained because the Legislature has merely altered the basis on which the judicial orders passed from July 1, 1981. Moreover, according to Mr. Naphade, the orders passed under the Companies Act do not deal with the sales tax law and, therefore, it cannot be said that the new impost interferes with the judicial power.
35. In rejoinder Mr. Dada submitted that once the company court passes an order under Section 391 of the Companies Act declaring that two companies stand amalgamated from a particular date then the State cannot alter that effective date in exercise of its legislative power. He submitted that the State is duty-bound to disclose the reasons for retrospective insertion of Section 33C to the BST Act. He submitted that to constitute sale, there must be two parties to the transaction and if by operation of law the two parties stood merged from a particular date, then, the transactions from that date cannot be said to be transactions between two entities so as to constitute sale and consequently there is no question of levying sales tax on such transactions. He relied upon the judgment of the apex court in the case of People's Union for Civil Liberties (PUCL) v. Union of India [2003] 2 JT 530. In that case, the apex court has held that the Legislature can remove the basis of a decision rendered by a competent court thereby rendering that decision ineffective, but the Legislature has no power to ask the instrumentalities of the State to disobey or disregard the decision given by the court. A declaration or an order made by a court of law is good or bad is normally a part of the judicial function. It was further held that the Legislature cannot declare that the decision rendered by the court is not binding or is of no effect. Relying upon the aforesaid decision, it was submitted that by retrospective amendment the State Legislature has in effect sought to nullify the order of the court which is not permissible in law.
36. We have heard counsel on both the sides. We have perused the documents placed before us. As stated hereinabove, we have taken up the second contention of the petitioners firm, for consideration in this petition, that is, whether the State Legislature can retrospectively declare, that for the purpose of sales tax, the date of amalgamation of the companies shall be from the date on which the scheme of amalgamation is approved by the court and not from the effective date of amalgamation declared by the court. In other words, the issue required to be considered is, that in all cases where the court after July 1, 1981, has approved the scheme of amalgamation and has declared that the effective date of amalgamation shall be from a date anterior to the date of approval, whether the State Legislature can retrospectively insert Section 33C to the BST Act and declare that in spite of the court order, the amalgamated company shall be deemed to exist up to the date on which the scheme of amalgamation was approved by the court. To be more specific, the issue required to be considered is that, if the court while sanctioning the scheme of amalgamation on November 10, 1994, has declared that the amalgamation shall be effective from April 1, 1993, whether the State Legislature by inserting Section 33C retrospectively from July 1, 1981, can say that for the purposes of sales tax, the amalgamation of the aforesaid companies shall be deemed to be effective from November 10, 1994 and not from April 1, 1993 The purpose of enacting Section 33C is to treat the transferor and the transferee companies as separate entities from the appointed date up to the date of approval of the scheme of amalgamation and to tax the transactions between the two during the said period as sale transactions. The question is, whether such retrospective enactment removes the basis on which the order of amalgamation is based or does it override the order of amalgamation itself ?
37. A company gets corporate personality or becomes a legal entity as per the provisions contained in the Companies Act/1956. Similarly, a company loses its corporate personality or is deemed to be destroyed on amalgamation from a date declared by the competent authority under the Companies Act. There can be no dispute that the High Court is one of the competent authorities under the Companies Act to approve the scheme of amalgamation from any specified day as it deems fit. Therefore, once the court order under the Companies Act declares that the amalgamation of the companies shall be effective from a particular date, then, from that date the corporate personality of the amalgamated companies ceases to exist for all purposes. From that day the corporate personality of the amalgamated company is destroyed completely. Before the court approves the scheme of amalgamation, it may be open to the Legislature to declare that for the purposes of sales tax, the transferor company carrying on business as a trustee or agent of the transferee company is a separate identity distinct from the transferee company and, therefore, liable to tax in respect of the transactions between the two companies up to the date on which the scheme of amalgamation is approved by the court. We are not considering that issue. However, in all cases where the court on a perusal of the scheme of amalgamation and in public interest after taking into account rights and liabilities of all the interested parties has declared that the effective date of amalgamation of the companies shall be from a date anterior to the date of sanctioning the scheme of amalgamation, then, from the effective date of amalgamation declared by the court the corporated personality of the amalgamated company is destroyed completely.
38. By inserting Section 33C to the BST Act retrospectively with effect from July 1, 1981, the State has in fact sought to nullify the effective date of amalgamation of companies declared by the court in all cases after July 1, 1981. Once the court has declared that the corporate personality of a company shall came to an end from a particular date, then that status can be altered only by the court. The said status cannot be altered by the State even in exercise of its legislative powers as it would amount to directly interfering with the order passed by the court. Moreover, there cannot be different dates of amalgamation for different authorities. It cannot be said that for the purposes of the Companies Act a company loses its corporate personality from a particular date and for the purposes of the BST Act the said company loses its corporate personality from another date. Once the court declares that a company stands destroyed from a particular date then the corporate personality of that company is destroyed completely from that date. Prospectively for the purposes of sales tax, it may be open to the State Legislature to artificially preserve the separate identity of the companies up to the date on which the court approves the scheme of amalgamation. However, in respect of amalgamation orders passed by the court prior to the insertion of Section 33C are concerned, the effective date of amalgamation declared by the court cannot be altered by the State Legislature as it amounts to overruling the orders of the court or declaring that the judicial decisions are not binding.
39. It is well-established in law that the Legislature cannot declare that the judicial decisions of the court are not binding, as it amounts to reversing the decisions rendered in exercise of judicial power. The court's decision always binds unless the conditions on which the decision is based, are fundamentally altered. In all cases, where the court, from July 1, 1981, has declared that the effective date of amalgamation shall be from a date anterior to the date on which the scheme of amalgamation is sanctioned, by retrospectively inserting Section 33C, the State is not altering the basis on which the court order is founded, but in fact, the State is nullifying the court order itself. The origin and destruction of a corporate personality flows from the provisions under the Companies Act. The State cannot declare as to when a corporate entity shall come into existence or cease to exist. Even assuming that by inserting Section 33C the State is trying to preserve the identity of the amalgamated company up to the date on which the scheme of amalgamation is approved, such provision can take effect only prospectively and not retrospectively because there will be nothing to preserve after the corporate personality of a company is destroyed from the effective date as per the order of the court.
40. The apex court after considering its decision in the case of General Radio and Appliances Co. Ltd. : [1986]2SCR607 in the case of Saraswati Industrial Syndicate Ltd, v. OT , has, inter alia, held as follows (page 189):
'The High Court's view that, on amalgamation, there is no complete destruction of the corporate personality of the transferor company but instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one, the transferor company loses its entity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective.'
41. Therefore, in the eye of law, complete destruction of the corporate body of the amalgamated company takes place from the effective date declared by the court. Any law enacted by the State to the contrary would be directly overruling the court order and render the judicial order nugatory. Such a law which encroaches upon the judicial domain is liable to be declared as unconstitutional.
42. In the case of Marshall Sons and Co. : [1997]223ITR809(SC) and Swastik Rubber Products Ltd. : [1983]140ITR304(Bom) , the income-tax authorities wanted to tax the company which was amalgamated with another company. The apex court held that although from the appointed date till the date of approval the transferor company had carried on business, the said business being carried on for and on behalf of the transferee company, there is no, income accrued to the transferor company and accordingly quashed and set aside the proceedings initiated under the Income-tax Act. Applying the aforesaid ratio laid down by the apex court to the facts of the present case it becomes clear that from April 1, 1993, PIL carried on business as agent or trustee of NOCIL and, factually, there were no transactions between NOCIL and PIL as separate corporate entities after April 1, 1993, which is essential to constitute a transaction to be a sale transaction. This factual position is accepted and approved by the court by its order dated November 10, 1994. The declaration of the court to the above effect cannot be set at naught by the State even in exercise of its legislative powers. As stated here-inabove, whether, prospectively, the State is competent to preserve the corporate personality of the company in amalgamation up to the date on which the scheme of amalgamation is approved by the court is not the issue considered at this stage. Suffice it to state that wherever the court has already declared that the corporate entity of a company is destroyed from the effective date, then there is complete destruction of that company from that date and it will not be open to the State to legislate that even after the effective date of amalgamation declared by the court, the amalgamated company shall be deemed to be in existence for sales tax purposes.
43. The apex court in the case of Bhopal Sugar Industries Ltd. : [1964]1SCR481 , has held that consumption by the owner of goods in which he deals is not a sale within the meaning of the Sale of Goods Act and, therefore, it is not 'sale of goods' within the meaning of entry 54, List II, Schedule VII to the Constitution. A Division Bench of this court in the case of Varun Polymol Organics Ltd. v. State of Maharashtra [1995] 97 STC 55 has held that the expression 'sale' used in entry 54 of List II must be interpreted so as to be applicable only to the transactions where there is transfer of property in goods by one party to another for consideration. It is further held that the State Legislature has no legislative competence to levy tax if there is transfer of goods or transportation of goods from one branch to another as deemed sale. In the present case, the court has held that the corporate personality of PIL is destroyed from April 1, 1993, and, therefore, after April 1, 1993, neither PIL existed nor PIL carried on business as an independent corporate personality. Consequently, there is no question of PIL entering into sale transactions with NOCIL after April 1, 1993.
44. The contention of the State that the Companies Act (Central legislation) and the BST Act (State legislation) operate in separate fields and, therefore, the orders passed under the Companies Act, 1956 do not affect the proceedings under the B.S.T. Act cannot be accepted. As stated hereinabove, the juristic personality of the company flows from the provisions of the Companies Act. The High Court, under Section 391 of the Companies Act is empowered to declare the effective date of amalgamation of companies and from that effective date the amalgamated company is destroyed completely. By a deemed fiction it may be open to the State to preserve prospectively the identity of the amalgamated company up to the date on which the scheme of amalgamation is approved by the court. However, Section 33C in so far as it purports nullify the amalgamation orders passed by the court from July 1, 1981, must be held to be unconstitutional.
45. The contention of the State that Section 33C is only clarificatory or explanatory and merely treats the reality as reality for the purpose of sales tax laws is also not correct. It cannot be disputed that from April 1, 1993, PIL as per the scheme of amalgamation has carried on business as agent of NOCIL. This reality is accepted and acknowledged by the court and the same cannot be set at naught by the State Legislature. Any legislation which directly makes inroads into the judicial domain renders itself being declared unconstitutional.
46. It may be open to the State Legislature to enact prospectively that for the purposes of sales tax the amalgamated and amalgamating companies are two separate and distinct entities up to the date on which the scheme of amalgamation is approved by the court, so that the company court while passing the order under Section 391 of the Companies Act would take note of the said provisions while sanctioning the scheme of amalgamation. We expressly keep this issue open and do not express any opinion as to the prospective validity of Section 33C of the BST Act. However, to the extent Section 33C seeks to alter the effective date of amalgamation of companies determined by the court from July 1, 1981, till May 3, 2002, must be held to be unconstitutional.
47. The contention of the State that by retrospective insertion the State has merely reiterated the law as existed cannot be accepted. As stated herein-above, in law, the transferor company carrying on business as agent or trustees of a transferee cannot be said to be carrying on business as a separate entity. The State, by a fiction has sought to declare that the transferor company carrying on business as trustee or agent of a transferee company is a separate entity for the purposes of the sales tax. Therefore, the fiction created by the State cannot be said to be reiterating the law as it existed.
48. In our opinion, Section 33C in fact creates a new liability by treating the transferee company and the transferor company carrying on business as agent or trustee of the transferee company as two separate entities from the appointed date till the date of approval of the scheme by the court. But for this new impost sales tax could not be levied in respect of the transactions between the transferee company and the transferor company carrying on business as agent of the transferee company. In the light of several decisions of the apex court set out hereinabove where the transferor and the transferee form one entity, it cannot be said that there were sale transactions between two entities. Even if the State is competent to create such a legal fiction, it cannot be created retrospectively. Under these circumstances, we have no hesitation in holding that Section 33C imposes new levy, a new principle and, therefore, the same cannot be said to be clarificatory or explanatory in nature.
49. It is true, by declaring that the amalgamation shall take place from a particular date, the company court is not giving any direction to the sales tax authorities. But once the court declares that the corporate personality of a company shall be destroyed from a particular date, the corporate personality of that company cannot be restored by the State Legislature as it amounts usurping the judicial power.
50. Although the amalgamation is the voluntary act of the parties in deciding to amalgamate from the appointed date that voluntary act acquires legal status and in law the transferee company ceases to exist from the appointed date declared by the court. Such a legal status which flows from the High Court order cannot be altered by the State Government.
51. It is true that there cannot be any inherent limitation on the powers of the State Government to retrospectively levy a tax. The contention of the State that in the instant case retrospective operation of Section 33C does not cause any hardship to the petitioners, because at the relevant time when the transactions took place, two companies were distinct and separate entities is also without any merit. As stated hereinafter from April 1, 1993, business was carried on by PIL as agent or trustee of NOCIL and not as a separate and distinct entity. The rights and liabilities of the companies in amalgamation as well as the taxable income of NOCIL and PIL have been determined on the footing that PIL ceases to exist from April 1, 1993. If Section 33C is to operate retrospectively then the entire scenario relating to profit sharing ratio, bargains by the shareholders and the assessed income of the two companies will be-severely affected.
52. The contention of the State that Section 33C must be judged on the parameters as applicable to validating law cannot be accepted because by the retrospective insertion of Section 33C the order of the court itself is nullified which is not permissible in law.
53. It must be remembered that in the present case it is not the infirmity or deficiency pointed out by the court which is sought to be remedied. On the contrary it is the order of the court which is sought to be nullified by the impugned legislation. In other words, in the present case the basis of amalgamation which has been approved and acknowledged by the High Court is sought to be nullified by the impugned legislation. In none of the decisions cited on behalf of the State it is held that the State render the judicial decision nugatory or worthless. The State has failed to establish the nexus or the rationale behind introducing Section 33C with retrospective effect from July 1, 1981. None of the provisions inserted to the BST Act on July 1, 1981, pertained to the effective date of amalgamation of companies. Therefore, there was no question of clarifying or explaining the provisions which were inserted to the BST Act on July 1, 1981. As stated hereinabove by the retrospective insertion of Section 33C the State has in fact sought to nullify the court order which is not permissible in law.
54. For all the aforesaid reasons, we hold that Section 33C is unconstitutional in so far as it purports to apply retrospectively. In other words, Section 33C in so far as it applies for the period prior to May 4, 2002, is declared to be unconstitutional. So far as the first challenge to the provision of Section 33C set up by Mr. Dada relating to the legislative competence of the State Legislature is concerned, in our opinion, it needs no consideration in the facts and circumstances of the case. In view of our finding on the retrospectivity of Section 33C of the BST Act, pronouncement on the question of legislative competence is not strictly necessary for the disposal of the petition. The apex court in the case of Basheshar Nath v. CIT : [1959]35ITR190(SC) ruled that the court should not make any pronouncement on any question which is not strictly necessary for disposal of the case before it.
55. In the case of Union of India v. C. Damani and Co., : AIR1980SC1149 , the apex court expressed that the court should examine the constitutionality of a statute only if it is absolutely necessary. In this view of the settled law, in our opinion, it is not at all necessary to examine larger question referred to hereinabove, raised by Mr. Dada appearing for the petitioners, especially when the petition can be decided on the narrower question though it related to the constitutionality of the provision in question.
56. In this view of the matter, without dealing with the larger contention, we allow this petition in terms of this judgment on narrower contention and accordingly make the rule absolute, keeping all other rival contentions open to the extent not dealt with herein, for consideration in an appropriate case. No order as to costs.